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State Moves Closer To Nation’s Toughest Anti-Takeover Bill

April 12, 1990

HARRISBURG, Pa. (AP) _ Pennsylvania is ready to adopt the nation’s toughest anti-takeover law despite an outcry from the nation’s investment community and securities regulators.

Lawmakers and Gov. Robert P. Casey are standing behind the measure despite claims by fund managers that it will cut off Pennsylvania companies from investment and that hostile takeovers are dying out for lack of financing.

″The bill is an overreaction to a problem that is pretty much in its final stages,″ said Charles M. LaLoggia, editor of LaLoggia’s Special Situation Report, a newsletter on takeover stocks.

″It’s sort of like the Keystone Kops arriving at the scene of a crime about a month late,″ he added.

The measure is supported by a labor-business coalition that says it will protect the state’s business and jobs from corporate raiders.

The bill likely will come to a final vote in the state Senate by the end of April. It cleared the House April 3 by a 182-10 vote, and the Senate approved an earlier version in December by 45-4. Casey says he backs the bill.

″He is very strong in his support of legislation that would prevent raids on Pennsylvania companies and jobs,″ said Casey’s spokesman, Vincent Carocci.

Fund managers have lobbied against the bill since its introduction last year, and they won a key ally last week in Richard C. Breeden, chairman of the Securities and Exchange Commission.

Breeden denounced the bill in an April 2 speech, saying it would deny shareholders their rights and allow bad managers ″to run a company into the ground.″

He said Pennsylvania, Indiana and other states are trying to ″tilt the balance of corporate power in favor of corporate management and against shareholders.″

Hostile takeovers have cost Pennsylvania thousands of jobs and the loss of such corporate mainstays as Gulf Oil Co., which closed its Pittsburgh headquarters after it was merged with Chevron Oil. The state ranks ranks fourth in the number of Fortune 500 company headquarters.

The AFL-CIO estimates about 90,000 jobs were lost around the nation over the last decade because of mergers, takeovers and leveraged buyouts.

But LaLoggia said the market already is correcting past abuses.

The excesses of corporate raiders have made it ″almost impossible to raise money in the junk bond market and the banking system for the type of leveraged buyout that caused companies to get into trouble,″ he said.

Those arguments hold little sway with the bill’s sponsor, Sen. Noah Wenger.

″This is precisely the time to move ahead,″ he said. The law also will be a model for other states, Wenger adds.

Pennsylvania already has some of the nation’s toughest anti-takeover laws. In 1983 and 1988, the state adopted measures to block creeping tender offers, two-tiered offers and efforts to squeeze out minority shareholders in order to finance takeovers with corporation assets.

The push for even stronger sanctions started after the Belzberg family of Canada started buying into Armstrong World Industries Inc., a Lancaster, Pa.- based building products manufacturer.

The Belzbergs now own a 10.68 percent stake in the $2.5 billion-a-year company and are waging a proxy fight to elect four candidates to the 14-member board at the company’s April 30 annual meeting.

A key plank of the bill that has sent opponents into a frenzy is a so- called disgorgement section.

For the first time in the nation, the measure would require corporate raiders to surrender profits earned by selling shares within 18 months of making a takeover bid. Supporters say the section will prevent the payment of greenmail, the practice of buying back stock from a raider at an above-market price.

Also under the bill, raiders who gain 20 percent or more of a company would not get voting rights until approved by other shareholders. Opponents contend this stipulation will make it virtually impossible to wage proxy fights.

The bill also would allow company directors to act in the interest of the entire corporation and to consider interests other than those of shareholders in assessing takeover offers. Such interests could include a takeover’s impact on employees, customers or the community. Opponents say that would violate management’s fiduciary duty to stockholders.

In provisions supported by organized labor, the bill spells out that employees must be paid severance and that labor contracts must be honored when corporate ownership changes hands.

More than half the states have enacted takeover laws, but Indiana is the only other state that allows managers to play down shareholders’ interests, said James E. Heard, managing director of The Analysis Group, a Massachusetts- based financial consultant retained by the Belzbergs.

About half the states also have limited restrictions on voting rights for acquisitions of large stakes, but they are not as broad as those proposed for Pennsylvania, Heard added.

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